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Mean-Variance Portfolio Selection with Reference Dependent Preferences

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Author Info

  • Sergiy Gerasymchuk

    ()
    (Advanced School of Economics, University of Venice)

Abstract

We study S-shaped utility maximization for the standard portfolio selection problem with one risky and one risk-free asset. We derive a mean-variance criterium of choice, which preserves reference dependence and the reflection effect. Subsequently, we study diversification possibilities and obtain the demand for the risky asset. We close the paper with an alternative interpretation of the criterium in terms of target-based decision making.

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File URL: http://virgo.unive.it/wpideas/storage/2007wp150.pdf
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Bibliographic Info

Paper provided by Department of Applied Mathematics, Università Ca' Foscari Venezia in its series Working Papers with number 150.

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Length: 19 pages
Date of creation: Apr 2007
Date of revision:
Handle: RePEc:vnm:wpaper:150

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Related research

Keywords: portfolio selection; S-shaped utility; prospect theory; reference point; mean-variance analysis; demand for the risky asset; target-based decisions.;

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References

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  1. Marco LiCalzi, 2005. "A language for the construction of preferences under uncertainty," Game Theory and Information 0509002, EconWPA.
  2. Pyle, David H & Turnovsky, Stephen J, 1970. "Safety-First and Expected Utility Maximization in Mean-Standard Deviation Portfolio Analysis," The Review of Economics and Statistics, MIT Press, vol. 52(1), pages 75-81, February.
  3. Herbert Simon & Lindsay McSweeney, 2010. "A Behavioral Model of Rational Choice," CPI Journal, Competition Policy International, vol. 6.
  4. Erio Castagnoli & Marco LiCalzi, 2005. "Expected utility without utility," Game Theory and Information 0508004, EconWPA.
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Cited by:
  1. de Farias Neto, Joao Jose, 2008. "S-shaped utility, subprime crash and the black swan," MPRA Paper 12122, University Library of Munich, Germany.
  2. Sergiy Gerasymchuk, 2008. "Asset return and wealth dynamics with reference dependent preferences and heterogeneous beliefs," Working Papers 160, Department of Applied Mathematics, Università Ca' Foscari Venezia.

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